Markets Today: Back to Black

Heading into Wednesday’s New York close, the S&P 500 is showing a gain of about 1.2% on the day, which equates to a rise of just 0.2% year to date.

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This will be the last Markets Today of 2015. Between Monday 4 January and Friday 8 January we will publish an abbreviated morning note but without the usual price tables or economic calendar.

Wishing everyone a happy and peaceful festive break and all the best for 2016.

Heading into Wednesday’s New York close, the S&P 500 is showing a gain of about 1.2% on the day, which equates to a rise of just 0.2% year to date. Back to black at least, but together with the observation that 10 year US Treasury yields are less than 10bps away from where they started the year (2.,26% vs. 2.17%) it means that for buy/sell and hold investors, currencies were the place to be in 2016.

The narrow DXY dollar index currently stands 9% up on the year. Only two currencies have outperformed the US dollar this year and both by tiny margins – the Swiss Franc (+0.24%) and the Israeli Shekel (+0.28%). In G10, the weakest currency has been the Canadian dollar (-16.1%) and testament to the dominance of oil prices in driving much of the global currency volatility of the past six months in particular. Monthly GDP data published overnight shows the Canadian economy contracted by 0.2% y/y as of October while retail sales (ex-autos) came in flat (+0.4% expected).

CAD is actually the best performing currency of the past 24 hours followed by GBP (the latter despite a downward revision to Q3 GDP to 0.4%). CAD gains follow a near 4% jump in oil prices. Incidentally Brent crude now trades below WTI ($37.43 vs. $37.56) and following last week’s decision by the US to lift the ban on oil exports. At the start of the year Brent attracted a premium of more than $4 a barrel.

In Emerging Markets, the three biggest currency losers are all from Latam – the Argentine Peso (-35% and after abandoning its crawling peg just one week ago) the Brazilian Real (-33% and arguably now the preeminent political and economic basket case of any major country) and the Colombian Peso -26% – representing an economy where petroleum accounts for almost 50% of total exports.

We’ve had a fair sprinkling of US economic data, the highlight of which was the November PCE deflator. At just 0.1% m/m (as expected) for the core measure, this keeps the annual rate stuck at 1.3%, highlighting the continued divergence between the narrower core CPI measure and this Fed-preferred inflation indicator (see Chart of the Day). The headline deflator is 0.4% y/y, up from 0.2% in October.

Durable goods orders beat expectations coming in at flat (-0.6% expected) after +2.9% last time. But the less volatile ex-transport number fell 0.1% against expectations for no change, while capital goods orders excluding defence and aircraft fell by a bigger than expected 0.4% (-0.2% expected). At the same time, New Home Sales rose by 4.3%, but only because October was revised down to 470k from 495k. The level (490k) is less than the 505k expected. We’ve also had the final University of Michigan consumer sentiment index, revised up to 92.6 from 91.8, more than the 92.0 expected.

Summing up all this week’s data, the Atlanta Fed’s latest ‘GDPNow’ model forecast for Q4 GDP is 1.3%, down from 1.9% on 16 Dec. Together with the still-soft PCE deflators, it’s no wonder markets aren’t expressing much confidence in the Fed taking its next step on rates as early as Q1 next year.

Coming Up

Weekly jobless claim is the only remaining US economic data point before Christmas Day. Nothing is due out of Europe this evening. For those fortunate enough to be taking a break next week, there will be a few things of note to catch up on upon your return. Japan will be publishing its latest CPI, unemployment and household spending on Christmas Day and numbers for industrial production and retail sales on Monday. RBA private sector credit day, for November, comes out next Thursday.

There’s a smattering of US economic data next, the highlight of which should be the December manufacturing ISM survey, next Thursday. The other important data to check out on Monday 4 January will be the official China PMI data, due out on the 1 January – no (Gregorian) New Year’s Day holiday in China. The private Caixin version comes out on Monday 4 January.

Overnight

On global stock markets, the S&P 500 was +1.20%. Bond markets saw US 10-years +2.66bp to 2.26%. On commodity markets, Brent crude oil +3.88% to $37.51, gold-0.5% to $1,069, iron ore +0.1% to $40.82. AUD is at 0.7239 and the range was 0.7209 to 0.7248.

For full analysis, download report:
• Markets Today: 24 December 2015 (PDF, 323KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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